Slovenia Upgraded from A+ to AA- by S&P

By , 17 Jun 2019, 15:16 PM Business
Slovenia Upgraded from A+ to AA- by S&P Montage: JL Flanner

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STA, 17 June 2019 - The rating agency Standard & Poor's (S&P) upgraded on Friday its rating for Slovenia from A+ with a positive outlook to AA- with a stable outlook due to strong economic growth and employment growth, the Finance Ministry said in a press release on Monday.

S&P said Slovenia "continues to post strong GDP and employment growth, alongside fiscal and external surpluses".

Based on the last nine years of private sector deleveraging and a decline of government debt to GDP since 2015, the agency thinks Slovenia has substantial buffers in the event of an external shock.

It projects Slovenia's net general government debt will decline further to about 40% of GDP over 2019-2022.

"The stable outlook takes into account the upside potential from faster income convergence toward the eurozone average, but also possible higher-than-expected external risks to economic growth, public finances, and financial stability, and the potential for buildup of macroeconomic imbalances."

After Moody's upgraded Slovenia's outlook to stable from positive in April, the upgrade by S&P is an "additional and significant confirmation that Slovenia is on the right track to get the AA rating it had in May 2006," the Finance Ministry said.

S&P raised its long- and short-term foreign and local currency sovereign credit ratings on Slovenia to 'AA-/A-1+' from 'A+/A-1'. The outlook is stable.

"The stable outlook on Slovenia balances the prospects for further income convergence with wealthier eurozone member states via balanced economic growth against the potential for a significant weakening in the external environment and the resulting adverse impact on the Slovenian economy and its budgetary position," the agency says in the report.

S&P expects the Slovenian economy will expand by 3.4% in real terms this year. "Growth will moderate to an average of slightly below 3% over 2020-2022, compared with brisk expansion over the past two years when growth reached almost 5% on average."

Domestic demand is expected to be the key driver of growth in the coming years.

The agency expects private consumption to pick up in 2019, and project investments expand at 7% in 2019-2022 in real terms, albeit slightly down from over 10% in 2017-2018.

It forecasts net general government debt will decrease to just over 40% of GDP by 2022, from 52% in 2018 due to robust GDP growth and sound fiscal results.

"In 2019, the debt reduction trend could be further supported by privatization proceeds from the sale of an additional 10% stake in the country's largest lender, NLB, and from the sale of the third-largest bank, Abanka."

Despite a slowdown in exports, S&P expects a "resilient performance of Slovenia's export-oriented manufacturing sector, and robust services exports, resulting in a slight reduction of the current account surplus to 5% of GDP by 2022 from 7% in 2018".

S&P also called for structural reforms in education, the taxation of labour, public administration, and state-owned companies.

It expects the structural reform agenda to be piecemeal, especially in health care, pensions, and long-term care of the elderly, and that the reduction of the state's role in the economy will progress only slowly.

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